The coronavirus pandemic caused many people to rethink their retirement plans. This financial crisis, coupled with the fact that people are living on average longer than ever before, has caused many people to delay their retirement. While many of us are often eager to leave behind the working life and embrace a more leisurely existence, there are several benefits to delaying retirement.
Ultimately, waiting a few more years may end up significantly increasing your quality of life as a retiree by providing you with more expendable income. In the end, you need to weigh the potential benefits with the drawbacks of spending more years in the workforce before you make this very personal decision. Some of the potential benefits that you should consider as you think it through include the following:
- You can save for longer.
The most obvious benefit of delaying retirement is that it gives you more time to grow your nest egg. In your final working years, you are probably making more money than at the start of your career, so it makes sense to rake in that income for a bit longer to put toward the future. Take advantage of retirement plans with tax benefits like IRAs and 401(k)s as much as possible. During this time, you can make catch-up contributions and put even more into these accounts. While it can be tempting to keep working indefinitely, that is not really a possibility. However, spending a few more years saving can significantly boost the amount of expendable income you have every month during retirement. For many people, this boost in income is worth a few more years in the workforce.
- You can maximize Social Security.
One of the best ways to maximize income during retirement is to get the biggest Social Security benefit possible. You will reach full retirement age between 66 and four months and 67 depending on the year you were born. While you can begin claiming Social Security before this time, it will reduce your annual benefit.
However, if you choose to delay the benefit, your annual Social Security income will increase, at least up until age 70. Someone who claims Social Security at full retirement age rather than 62, the first age at which you can, will have 30 percent more in annual benefit. For every year up to age 70, you get an additional 8 percent boost. This is important because the benefit is fixed for life and accrues cost-of-living adjustments, which are percentages of the benefit. When you have a higher benefit to start, it only increases over time.
- You can plan for fewer years.
When you work longer, you will rely on your savings for fewer years. In other words, not only will you have more savings, but you will need it for a shorter amount of time. When you delay your retirement, you also put off drawing from your retirement accounts. This reduces the chances that you will run out of money down the line and increases the amount that you have available to you each month. If you are stressed about running out of money during retirement, taking a few more years to work may be the solution. While this may not necessarily leave you with a lot more money to spend each month, relieving the stress that you could run out of money during retirement can be worth the extra time in the workforce.
- You can get employment benefits.
Once you retire, you no longer have employment benefits. Some people are shocked about what this means for their daily lives. Employers do much more than give you a salary. Often, people get health insurance from their employers, as well as other benefits, such as gym memberships, access to company cars, and help to pay back student loans. Consider the benefits you get from your employer and how much it would be to cover these costs yourself. Health insurance, for example, is a major expense for retirees, so make sure to find out what you would owe. Keep in mind that most retirement plans are not as comprehensive as those offered by employers. Also, you should not forget that many employers offer a retirement plan match, which is essentially free money that you can continue to take advantage of for a few more years.
- You can improve your health.
Recent research shows that working longer can improve your health. One study found that people who worked past age 65 were three times more likely to report being in good health and half as likely to have chronic health conditions. This is likely because of several factors, including increased levels of activity and engagement with the healthcare industry. Plus, working longer keeps you engaged mentally and socially. This engagement can have significant health benefits. A study in the Journal of Epidemiology and Community Health found that working one year past the age of 65 lowered mortality risk by 11 percent. Even challenging work environments provide these benefits because they keep the mind active and encourage critical thinking, which may outweigh the stress of these environments.